Covestro, Royal Helium, Nikola - Where will this lead?

Broken supply chains, scarce raw materials

Hardly any company in the manufacturing industry can escape this negative trend at the moment. The automotive industry has already had to cut back production due to the shortage of semiconductors, and prices for prefabricated houses rose by up to 20% in the course of the first quarter. According to the Munich-based ifo Institute, 45% of industrial companies are affected, by far the highest figure since 1991. Added to this is the need for raw materials for the energy turnaround. The price of the elementary metal copper alone doubled within a year.

Strategic and critical

For the European Union, helium is one of the strategic raw materials. The USA even considers the smallest and second-lightest of all known elements a critical element. No wonder, considering the nature of the gas, helium is the only substance that does not solidify at absolute zero, i.e. at -273.15 degrees Celsius. Because of its uniqueness, helium is needed in many industries, such as aerospace engineering, medical technology, or for cooling data centers. The price of 1,000 cubic feet of helium has risen from about USD 100 to nearly USD 375 in the past 10 years. According to industry insiders, helium has even been traded on the spot market at prices over USD 500 per 1,000 cubic feet.

Pure helium from Canada

Demand, on the other hand, is matched by limited supply. Billion-dollar companies such as Linde, Air Products & Chemicals and Chart Industries treat the helium issue as an add-on business. A pure helium play, on the other hand, can be found in southern Saskatchewan in Canada. Here, one of the largest helium producers in North America, Royal Helium, owns a land area of more than 400,000 hectares. The Company, which has a market capitalization of just EUR 12 million, has established a commercially viable helium concentration in recent months through test drilling in the Climax I to III projects. It will enable Royal Helium to enter production directly and generate cash flow.

Currently, preparations are underway for Climax-4, which targets the new regolith helium discovery zone to produce the helium found in this formation at the Climax-3 site, already permitted for production. Spurred by the strong results, Royal Helium will immediately expand the Climax-Nazare program by applying for two additional drilling licenses for a potentially large pool that seismic surveys indicate could extend over 30 square miles. Royal Helium's stock has been in a sideways movement for months. A breakout at EUR 0.36, driven by continued positive news flow, could get Helium ballooning again. The high for the year was almost 100% higher at EUR 0.64.

Nikola attacks

Compared to helium shares, papers from the hydrogen sector were the stock market stars of the past year. In recent months, however, they knew only one direction: down. Nikola, a provider of zero-emission transportation and energy infrastructure solutions, signed a memorandum of understanding on Thursday with OPAL Fuels LLC, a producer of renewable fuels in North America, to build, develop and operate hydrogen fueling stations in North America and use renewable natural gas in hydrogen production.

The two companies plan to jointly develop and commercialize hydrogen fueling stations to accelerate the adoption of zero-emission fuel cell electric vehicles for heavy-duty applications. OPAL Fuels has built over 350 RNG fueling station projects and has maintained relationships with trucking fleets across the continent for over 15 years.

In addition, both parties plan to leverage OPAL Fuels' growing RNG portfolio to cost-effectively reduce the carbon intensity of Nikola's station-delivered hydrogen to meet customers' sustainability goals as they begin the transition to zero-emission vehicles. Following the sell-off in Nikola shares, the level around USD 10.60 offers a speculative entry opportunity.

Bullish analysts

Covestro, formerly Bayer Material Science, is running like clockwork at the moment. The Company raised its full-year forecasts as recently as July, and now the DAX-listed Company expects to "close the third quarter at the upper end of the forecast or even above it." The Company was still recently expecting EUR 760 million to EUR 860 million in operating profit for the third quarter.

Due to the ongoing positive news flow, Covestro also expects significantly higher profits in the coming years. The new group structure and the recent acquisition of DSM are also likely to contribute to this. In 2024, operating profit excluding special cyclical effects is expected to reach EUR 2.8 billion. This year, Covestro expects EUR 2.2 billion. Following the publication of the new target forecasts, various analyst firms showered the Leverkusen-based Company with recommendations. Deutsche Bank, Baader and DZ Bank all see Covestro as a buy candidate.

The shortage of raw materials due to holes in the supply chains threatens the growth of all industries. Helium, a strategically important and scarce gas for medical technology, among others, has also quadrupled in recent years. Royal Helium, as a pure helium Company, should benefit from this boom. Nikola is on the up, and Covestro was able to top its high forecasts once again and should reach new heights after a short breather.